New Directions: Moving on from BusinessWeek

Hey folks, apologies again for not posting that much lately. Things have been hectic at work lately, and now I have some news to share about the situation.

I am no longer working for BusinessWeek. I wanted to leave, and am excited to be moving on to new opportunities and different challenges. It was a great 10-year run, and an experience I will always treasure. I met many incredible and super-talented people, learned a lot about a lot of things, savored the opportunity to cover some of the biggest stories of the decade, and made a few good friends along the way. I wish all of my former colleagues the best in their endeavors.

Watch this space for updates on my situation. Onward and upward . . . .

Macmillan CEO Fires First Shot in eBook War Against Amazon.com

Th eBook War has begun.

On January 30, Macmillan CEO John Sargent took the unusual step of going public in his company’s dispute with Amazon.com. To explain why Macmillan’s books were taken off of the Kindle and Amazon.com, Sargent took out an advertisement in Publishers Lunch, an increasingly influential blog that covers the publishing industry.

The heart of the war is increasing tensions between publishers and Internet retailers such as Apple and Amazon over the pricing of books in the digital age, an issue that I focused on in my BusinessWeek feature, eBooks: Averting a Digital Horror Story. Amazon has deeply discounted ebooks, typically charging $9.99, and sometime going as low as $7.99. However, publishers don’t take a loss. They are typically paid about half the hardcover’s retail price, whether a digital book or hardcover is sold. But Amazon has been pushing to pay them less, and many publishers think cheap digital books undervalue their product and will open the door to lower industry revenues in the future.

That’s the problem that Sargent tackled in his note. In the ad, Sargent proposes moving to a different business model in which publishers set the price of ebooks and split the revenue with retailer, with the publisher keeping 70%, and 30% going to the retailer.

This is precisely the type of business model and revenue split that Apple is reportedly offering publishers who offer ebooks on its new iPad tablet computer. The growing battle between Amazon and Apple over digital content distribution is going to be one of the most important tussles of the Digital Age. It will shape the future of electronic culture. This is just the beginning.

And publishers should be careful what they they wish for. Many publishers are worried that Amazon will end up with the same kind of pricing power in books that Apple has in music, and that the book industry will suffer the same kind of bruising decline. Now, with the iPad, they are clearly trying to use Apple as a wedge in that fight. But as Tim O’Reilly told me, Apple could very well end up being the dominant player in ebooks.

One reason: More than 50 million people have the company’s iPhone or iPod Touch, which can be used to read digital books, compared with just four million who have electronic book readers. O’Reilly says his company is generating far more sales from Apple customers than Kindle users. O’Reilly currently offers 500 books on the iPhone, compared with 350 Kindle titles. Another 500 iPhone titles are in the works. the iTunes/App store and the iPad.

Whether one company will end up benefiting content providers more than another over the long run is the big question.

Check out Sargent’s letter:
Editors’ note: This message ran as a paid advertisement in a special Saturday edition of Publishers Lunch

To: All Macmillan authors/illustrators and the literary agent community
From: John Sargent

This past Thursday I met with Amazon in Seattle. I gave them our proposal for new terms of sale for e books under the agency model which will become effective in early March. In addition, I told them they could stay with their old terms of sale, but that this would involve extensive and deep windowing of titles. By the time I arrived back in New York late yesterday afternoon they informed me that they were taking all our books off the Kindle site, and off Amazon. The books will continue to be available on Amazon.com through third parties.

I regret that we have reached this impasse. Amazon has been a valuable customer for a long time, and it is my great hope that they will continue to be in the very near future. They have been a great innovator in our industry, and I suspect they will continue to be for decades to come.

It is those decades that concern me now, as I am sure they concern you. In the ink-on-paper world we sell books to retailers far and wide on a business model that provides a level playing field, and allows all retailers the possibility of selling books profitably. Looking to the future and to a growing digital business, we need to establish the same sort of business model, one that encourages new devices and new stores. One that encourages healthy competition. One that is stable and rational. It also needs to insure that intellectual property can be widely available digitally at a price that is both fair to the consumer and allows those who create it and publish it to be fairly compensated.

Under the agency model, we will sell the digital editions of our books to consumers through our retailers. Our retailers will act as our agents and will take a 30% commission (the standard split today for many digital media businesses). The price will be set the price for each book individually. Our plan is to price the digital edition of most adult trade books in a price range from $14.99 to $5.99. At first release, concurrent with a hardcover, most titles will be priced between $14.99 and $12.99. E books will almost always appear day on date with the physical edition. Pricing will be dynamic over time.

The agency model would allow Amazon to make more money selling our books, not less. We would make less money in our dealings with Amazon under the new model. Our disagreement is not about short-term profitability but rather about the long-term viability and stability of the digital book market.

Amazon and Macmillan both want a healthy and vibrant future for books. We clearly do not agree on how to get there. Meanwhile, the action they chose to take last night clearly defines the importance they attribute to their view. We hold our view equally strongly. I hope you agree with us.

You are a vast and wonderful crew. It is impossible to reach you all in the very limited timeframe we are working under, so I have sent this message in unorthodox form. I hope it reaches you all, and quickly. Monday morning I will fully brief all of our editors, and they will be able to answer your questions. I hope to speak to many of you over the coming days.

Thanks for all the support you have shown in the last few hours; it is much appreciated.

All best,
John

Bloomberg BusinessWeek Exclusive: Content-Search Deals Make Twitter Profitable

Content-Search Deals Make Twitter Profitable
Data-mining deals signed in October will bring in $25 million in exchange for rendering Twitter’s tweets searchable on Google and Microsoft Bing

By Spencer E. Ante

Twitter is ending 2009 on a high note. The microblogging site has reached profitability after inking $25 million of deals that make its content searchable by Google (GOOG) and Microsoft (MSFT), Bloomberg BusinessWeek has learned.

In October, Twitter said it had struck multiyear arrangements that make users’ short blog postings available on Google.com and on Bing, which is run by Microsoft. Those agreements carry sufficient value to help Twitter achieve a small profit for 2009, say two people familiar with the company’s finances, who asked to remain anonymous because Twitter’s books are not a matter of public record.

Like many social media startups, three-year-old Twitter focused early on adding subscribers rather than generating revenue. That’s left many analysts and investors wondering how and whether the company—often cited as a candidate for an initial public offering or acquisition—would make money. Twitter co-founder Biz Stone declined to comment on the company’s finances, but wrote in an e-mail that the company is proud of the work it accomplished in 2009. “We’re thrilled about the partnerships we’ve formed this year and we’re looking forward to opening Twitter even more in the future,” Stone wrote.

In exchange for making short blogs, known as tweets, searchable on Google, Twitter will receive about $15 million, the two people say, adding that the Microsoft partnership is worth about $10 million. “The deals were huge,” says one. “With two scoops of the pen, a lot of revenue came in.”

Read the rest of the story here.

Here Come the Innovation Hippies! Beware of Social Media Snake Oil

My newly departed colleague Steve Baker’s last piece for BusinessWeek is a contrarian take on social media. Given that this skeptical piece was penned by one of social media’s biggest fans and practicioners, it’s worth a close read.

Says Baker: “The problem, according to a growing chorus of critics, is that many would-be guides are leading clients astray. Consultants often use buzz as their dominant currency, and success is defined more often by numbers of Twitter followers, blog mentions, or YouTube hits than by traditional measures, such as return on investment.”

Read the rest of the piece here. It’s generating a pretty vibrant discussion on bw.com.

Startups: Job Creation Engines (Are You Listening Obama?)

In this week’s issue of BusinessWeek, we published the inaugural list of “The World’s Most Intriguing New Companies.” I am thrilled that we launched the package right as Global Entrepreneurship Week kicks off, taking place Nov. 16-22, in 85 nations.

In my lead story for the package, “Fertile Ground for Startups,” I made two big points:
1. Startups are playing an increasingly important role in American business
2. Startups may play a central role in any recovery.

There was one startling new study, based on 2007 Census data, I was unable to work into the story that I want to highlight now, which provides some empirical evidence supporting the second point.

According to a new study by the Ewing Marion Kauffman Foundation, which was co-written by the respected economist Robert Litan, companies less than five years old generated nearly two-third of the net new jobs created in the U.S. in 2007. Without these startups, “net job creation for the American economy would be negative in all but a handful of years.”

The upshot: It is clear more than ever that new companies and the entrepreneurs that lead them are the engines of job creation and economic recovery.

It is well known within economic circles that new companies produce the majority of new jobs in the U.S. economy. What this reports reveals for the first time is extent of that trend, and the fact that startups play a particularly important role in growing jobs out of a recession. New companies have produced all of the net new jobs in the U.S. from 2001-2007, and also from 1980-1983, the last big American downturn, according to the study.

Read the rest of the BusinesssWeek blog post here and also see an embedded link of the report.

Introducing “The World’s Most Intriguing New Companies”

Here’s the lead of my story introducing a big new project and special report I’ve been working on the last few months. It’s called “The World’s Most Intriguing New Companies,” and highlights 25 of the world’s coolest startups with game-changing potential.

In addition to my story and the list, the package also includes five profiles of standouts companies on the list: Epizyme, Driptech, Layar, Phycal, and China Water & Energy. And that’s not all! We’ve also created an interactive slide show of the 25 startups, plus an online extra about another Chicago startup called CitySourced. Check it out and let us know what you think.

Fertile Ground for Startups
History shows that a certain breed of entrepreneur feeds off adverse conditions, and this recession is no exception

By Spencer E. Ante

Who needs job security? In June 2008, as the recession was moving from bad to worse, Caterina Fake gave up a comfortable, executive-level job at Yahoo! (YHOO) to launch a company. She left California and set up shop in New York City to co-found Hunch, a Web site that uses the experiences of others to help people make decisions. The 40-year-old, who had co-founded the photo-sharing site Flickr before it was acquired by Yahoo, couldn’t resist the idea of creating something new, whatever the economic headwinds. “The entrepreneurial spirit really thrives in situations of adversity,” says Fake. “The world is full of more possibility.”

Fake isn’t alone in betting on that. A crop of potentially groundbreaking companies is emerging from the wreckage of the Great Recession. No question, some will blow up, and others will fail to reach their potential. But the downturn has done little to dampen the entrepreneurial spirit. During the first half of this year, angel investors financed 24,500 new ventures, 6% more than during the same period last year, according to the Center for Venture Research. The overall amount of money going into startups has declined, but the figures suggest that this year will see the birth of roughly 50,000 companies with enough promise that someone is betting money on them. “It may be that this is the best time to start a company,” says Carl Schramm, president of the Kauffman Foundation, an organization that promotes entrepreneurship.

“VAST AND UNTAPPED”
With that backdrop, BusinessWeek set out to find the world’s most intriguing new companies. After much reporting and research, we’ve assembled a list that’s a barometer of innovation trends in the global economy, with startups that are pioneering new markets in biotechnology, clean technology, health care, and Web computing. Hunch is just one of 25 that made the final cut. Other standouts include Epizyme, a Massachusetts outfit creating cancer-fighting drugs that attack errant proteins; China Water & Energy, a Hong Kong company developing massive wind-power farms in the Chinese countryside; and Driptech, a California startup engineering low-cost irrigation systems for poor farmers around the world. “The markets that we are addressing in India and China are vast and untapped,” says Driptech’s 26-year-old founder, Peter Frykman.

Read the rest of the story and package here.

New Amazon Review: “Creative Capital is a Must Read If You’re In Business Today”

Check out a new customer review of Creative Capital, just published on Amazon.com.

Creative Capital is a Must Read If You’re In Business Today
By Carole Gunst “loves to read” (Boston, MA)

Spencer Ante has done a wonderful job writing the life story of General Georges Doriot, respected Harvard Business School professor, military general, and the father of venture capital. I had the good fortune to hear Spencer, who also writes on business for Business Week magazine, speak about Doriot’s story at the French Library in Boston before I started reading the book. His stories about the man who was so influential for U.S. business were fascinating. Here are a few of Doriot’s quotes that he pulled from the book to share with us:

* “A real courageous man is a man who does something when no one is watching him.”
* “If information is to be exchanged over whiskey, let us get rather than give it.”
* “You will get no where if you do not inspire people.”
* “Always remember that someone somewhere is making a product that wil make your product obsolete.”

From the stories about Doriot’s early introduction to entrepreneurship as the son of a Peugot engineer, to Doriot’s entry into Harvard Business School, to the importance he played with R&D during World War II which taught him how to become a venture capitalist to the part he played in the starting up of Digital Equipment Corporation, this book remains fascinating.

If you are in business today or would like to be, this is a must read from a great writer about a visionary business thinker. I think you’ll agree that Doriot really pioneered the transition of U.S. business to an economy built on entrepreneurship an innovation.

BusinessWeek Launches Blackberry & iPhone Apps

Over the last week, BusinessWeek entered the wireless application market and launched its first two apps. Last week, the BusinessWeek for Blackberry app was released, and yesterday we launched an iPhone app.

I have not seen the iPhone app yet but I just downloaded the Blackberry app. To get the app, I would recommend going to this Web site, instead of downloading it from the Blackberry app store. I tried to download it from the app store but it did not work. On the other hand, the Web-based download process worked fine.

The BW app features three main sections: Latest news, a watch-list of stocks, and another channel list that organizes the headlines based on the subject matter (e.g. Top News, Finance, Technology, Innovation, Management, etc.)

The app and stories download fast. The user interface is clear and iis easy to navigate. And the stock ticker feature works, though it was a bit slow when I used it this morning. It is also easy to add stocks to your watch-list by clicking on a link. That’s all good.

For future iterations, I would like to see a tab that zips you to the Most Read or Most Emailed stories of the day. That is one of my favorite features of the Bloomberg app. And it would be cool to be able to watch our videos on the mobile app as well. Congrats to the BW team for launching these apps. I look forward to hearing feedback from users, which you can easily pass along via a link at the bottom of the app.

Where Have You Gone Bell Labs?

Management consultant Adrian Slywotzky wrote an incredible think piece and call to action in this week’s BusinessWeek. This is a must-read story about the future of America.

I couldn’t agree more with his conclusion that America needs another Manhattan Project or DARPA to inspire and stimulate the next blockbuster industry or two that will keep our nation prosperous and secure.

President Obama clearly appreciates the importance of science. Now he needs to take things to another level and launch the equivalent of our generation’s space race. And this story provides a blueprint to do that.

Where Have You Gone, Bell Labs?
How basic research can repair the broken U.S. business model

By Adrian Slywotzky
Name an industry that can produce 1 million new, high-paying jobs over the next three years. You can’t, because there isn’t one. And that’s the problem.

America needs good jobs, soon. We need 6.7 million just to replace losses from the current recession, then another 10 million to spark demand over the next decade. That’s 15 million to 17 million new jobs. In the 1990s, the U.S. economy created a net 22 million jobs (a rate of 2.2 million per year), so we know it can be done. Between 2000 and the end of 2007 (the beginning of the current recession), however, the economy created new jobs at a rate of 900,000 a year, so we know it isn’t doing it now. The pipeline is dry because the U.S. business model is broken. Our growth engine has run out of a key source of fuel—critical mass, basic scientific research.

The U.S. scientific innovation infrastructure has historically consisted of a loose public-private partnership that included legendary institutions such as Bell Labs, RCA Labs, Xerox PARC XRX, the research operations of IBM IBM, DARPA, NASA, and others. In each of these organizations, programs with clear commercial potential were supported alongside efforts at “pure” research, with the two streams often feeding one another. With abundant corporate and venture-capital funding for eventual commercialization, these research labs have made enormous contributions to science, technology, and the economy, including the creation of millions of high-paying jobs. Consider a few of the crown jewels from Bell Labs alone:
• The first public demonstration of fax transmission (1925)
• First long-distance TV transmission (1927)
• Invention of the transistor (1947)
• Invention of photovoltaic cell (1954)
• Creation of the UNIX operating system (1969)
• Technology for cellular telephony (1978)

DECLINE IN LAB FUNDING
In the decades after these initial discoveries, vibrant industries and companies were born. The transistor alone is the building block for the modern computer and consumer-electronics industries. Likewise, DARPA’s creation of the Internet (as ARPAnet) in 1969 and Xerox PARC’s development of the Ethernet and the graphic user interface (GUI) further developed the transformative computer and Internet industries. The basic research breakthroughs unleashed subsequent cycles of applied innovation that created entirely new sectors of our economy.

But since the 1990s, labs dedicated to pure research—to the pursuit of scientific discovery—have seen funding slowly decline and their mission shift from open-ended problem solving to short-term commercial targets, from pure discovery to applied research. Bell Labs had 30,000 employees as recently as 2001; today (owned by Alcatel-Lucent ALU) it has 1,000. That’s symbolic and symptomatic of the broken link in the U.S. business model. With upstream invention and discovery drying up, downstream, industry-creating innovation is being reduced to a trickle.

Click here to read the rest of the story.

The Great Skills Mismatch: Wall Street Quants Thumb Their Nose at Tech Startups

There’s an emerging structural shift in the U.S. economy that has created a serious mismatch between employers and employees in today’s economy. That’s the provocative thesis of this week’s cover story in BusinessWeek, “Help Wanted.”

This is a big deal that could have major repercussions. Among them, says my colleague Peter Coy, are:

The unemployment rate is likely to remain distressingly high because many people who want jobs will lack the appropriate qualifications. Second, inflation could pick up sooner than expected if employers are forced into bidding wars to recruit the few people who are qualified for the work. Third, if unemployment stays high it will put additional political pressure on Congress and the Obama Administration to push through fixes that could make matters worse in the long run, such as insulating workers from the cost of long-term unemployment to the point where they lose their appetite for work.

I was one of several reporters and editors who helped Peter write this cover. I learned a few interesting things while reporting the story, which led me to believe that this shift was having a real impact. One thing I learned is that the thousands of laid off workers from Wall Street, many of whom have high-level math and computing skills, are so far not that interested in leaving finance and going to work for a tech startup.

Consider this one story from venture capitalist Fred Wilson. Last fall after Lehman Brothers fell, Wilson, cofounder of the New York venture capital firm Union Square Ventures, backed an experimental Web site called www.leavewallstreetjoinastartup.com. (The other venture capital firm that backed the site was First Round Capital.)

The idea was to try to lure some of the talented software engineers who had been laid off on Wall Street to technical jobs at the two dozen New York-area companies that his venture capital firm was financing. Wilson was fishing for quants.

But it wasn’t the game-changer the VCs were hoping for. Wilson only filled a handful of jobs. “It wasn’t the panacea I thought it would be,” says Wilson.

It turns out that the learning curve was too steep for many financial engineers who were not well versed in the ins and outs of online advertising and analytics. Plus, many Wall Street refugees are not prepared to accept a massive reduction in their salary.

“For a lot of people who used to work on Wall Street they have a large personal burn rate,” says Wilson. “For them to take a job that pays a lot less they have to make a meaningful change in their lifestyle. And that is an issue.”

What does this mean for tech companies? I think it means that it will most likely be hard to poach seasoned talent from the financial world for the next few years. Most of the Wall Street folks I know who have been laid off are still looking for jobs with financial firms, though they are more likely of the smaller, boutique variety. Some of them are finding jobs. Not all of them will, though. Wall Street just won’t be big enough to absorb all the people who have been laid off or fired. That restructuring process is probably going to take a few years to play out.

Meanwhile, if I was a tech company, I would focus on trying to poach talent from other tech companies, or I would look for recent graduates or younger employees with tech skills that can be retrained much more easily.

This is the hope of President Obama. In a lengthy interview in the New York Times magazine with David Leonhardt, President Obama says that one healthy consequence of the financial crisis will be that college grads with math skills won’t automatically want to become derivatives traders. “We want some of them to go into engineering, and we want some of them to be going into computer design,” said Obama.

The President also is aware of the skills shift. In the interview, he said one of the biggest constraints holding back his plans for building electricity smart grid is a lack of “trained electricians to lay down those lines. . . Somehow we have not done a good job of matching up the training with the need out there. And that’s one of things where government can help, help to guide and steer our education process in a way that meets future needs and not just the needs of the past.”

So I would expect to see more talk and action from the Obama Admin. on this skills mismatch and retraining issue. He clearly sees it as a economic problem and priority.